Annuities Is the “Market” for Retirees’
The current state of the economy has a lot of people thinking about the future, and now is the perfect time to consider annuities. Key decisions about retirement income shouldn’t be put off, specifically in uncertain economic times. The turmoil has made people more aware of the need to understand where their money is going and how it fits their needs.
Historically 100% of all ten-year periods of “the market” have made money and 97% or every five years the “market” has made money, so it is very likely that the “market” to come back. It can take 5 to 10 years, but will rise again. However, retiree or near retiree’s should balance risk and stability?
When the economy changes, which investments are going to do well is going to change. An investment that’s good today, six months from now is probably not going to be the right place to be.
Stock markets may have rebounded somewhat, however, there is no investment that is good for all times, but no matter what times are doing, there are some investments that are good. Near retirees’ and retirees’ are not ready to dive back into equities, rushing instead to the safe and relatively still waters of guaranteed annuities.
Americans for a long time have relied on other things, including growth in the value of their home, growth in the value of their 401(k) or other things as a substitution for savings. That has worked for this period of time. However, it is not likely to continue to work in the future and this is where annuities really shine.
For most people, ignoring this financial product is simply not an option. And while it may not be suitable for all people, it is usually included in one form or another in most retirement plans. During times where the economy fluctuates investments have to be monitored closely, but not an annuity. Annuities are a great supplement to your retirement if you position yourself to take advantage of their tax advantages and if you have put adequate funds into more traditional retirement accounts.
Fixed Indexed annuities: FIAs are fixed annuities linked to the performance of a stock market index without the risk of loss in accumulation value because of negative stock market performance. FIAs can sometimes bring returns better than CDs, bonds, or money market accounts.
Fixed Indexed Annuities offer principal protection and a chance to benefit from market gains. During the accumulation phase of an FIA, you have the opportunity to benefit from positive stock market performance, and are protected from loss due to negative stock market performance.
An FIA annuity contract usually guarantees you a minimum rate of interest on your purchase payments while the annuity is growing. The insurance company involved will credit you with either the minimum return stated in the contract or a return based on the performance of the linked index.
A recent Wharton School / New York study of life, this may be The most effective means to ensure stable profitability level of retirement income, regardless of how long it lasts. Fixed Indexed annuities are wonderful products for the risk averse and people nearing retirement. Fixed annuities are the only product that can offer solid rates of pay and guaranteed income without having to constantly manage investment accounts as market changes.
What are immediate fixed annuities? Just as the heart and circulatory system delivers the essential blood flow to the human body, cash flow is the delivery system within a financial plan. These are annuities that are as they sound, fixed and provides’ cash flow. That means that you can depend on the amount that you are getting no matter what happens. That can add some peace of mind to your retirement plan as well as securing whatever amount of money you were planning on leaving behind to your family.
Retiree’s Tools and Calculators
J.P. Getty said, “People who don’t respect money don’t have any.” A key component of every financial plan is a retirement projection mapping out the type of lifestyle the retiree would like to enjoy, & how they are going to get their goals. This calculation depends on several key factors: the retiree’s current age, size of their nest egg, expected retirement date, desired lifestyle during retirement, & a projected life expectancy.
Interestingly, a majority of wealthy Americans said they’re concerned that they won’t have enough retirement income to last through their lifetimes, according to a 2010 Bank of America survey. The Bank of America survey said 53 percent are concerned about making sure retirement assets will last.
Over half of non-retired respondents made some adjustments to their lifestyles last year, such as spending less on personal luxuries or giving less to charities, & 29 percent said they expect to retire later than originally planned, the study said.
In a recent survey conducted on behalf of Merrill Lynch Global Wealth Management, retirees were asked where they would recommend those within ten to fifteen years of retirement focus their attention on retirement planning & where those over fifteen years from retirement should be focused:
Within Ten – Fifteen Years of Retiring:
• Generate a retirement plan around what is most important to you (51 percent).
• Have a retirement plan to manage income throughout retirement (47 percent).
• Pay down debt before retirement (40 percent).
• Account for unexpected costs & risks such as health care, cost of living and/or market fluctuations (38 percent).
• Pursue home ownership (24 percent).
• Be cautious of taking investment risks (21 percent).
More Than 15 Years Before Retiring:
• Generate a retirement plan around what is most important to you (43 percent).
• Pay down debt before retirement (41 percent).
• Have a retirement plan to manage income throughout retirement (39 percent).
• Account for unexpected costs & risks such as health care, cost of living and/or market fluctuations (38 percent).
• Work with a financial advisor if you don’t already (25 percent).
• Pursue home ownership (25 percent).
No doubt if you follow the financial advice of these retirees, you will do all right.
Being conservative when constructing a financial plan is critical — The assumptions made in your plan should always be conservative & achievable. Frequently updating the financial plan maximizes the probability the client’s goals will be achieved.
Other variables to think about are the rate of return the client’s investments can accomplish (both before & after retirement), how much the client can contribute to their nest egg before retiring, & the effects of inflation.
When it comes to getting a handle on your financial situation & gauging how much you will need to retire the Internet offers a buffet of retirement planning tools & calculators that can be helpful. A number of the best retirement planning tools & calculators are easy to use & don’t charge a fee.
Plenty of retirement calculators chart your retirement outlook & suggests ways to help you create a plan to reach your goals and/or projects whether your retirement-income needs will be met based on your retirement savings, other financial assets, & age.
There’s plenty of sites that you can utilize to figure out how much you need to save for retirement. First look at your Social Security Benefits on the Social Security government web-site you can estimate your future Social Security retirement benefits at different ages using different future earnings projection. http://www.ssa.gov/estimator .
Life expectancy planning is the next step in planning. http://livingto100.com The Living to 100 Life Expectancy Calculator uses the most current and carefully researched medical and scientific data in order to estimate how old you will live to be. Most people score in their late eighties… how about you?
www.tomorrowsmoney.org Wouldn’t it be nice to look forward to the future with confidence? Well, tomorrow is right around the corner. Take a few easy steps now and you and your loved ones will be able to enjoy a secure future with the money you’ve begun saving and investing today.
Everyone wants to look forward to their future with confidence, but it’s difficult to know how to save and invest until you know three things:
1. How much money you currently have
2. How much money you’ll need, and
3. What type of investments to look into given your own personal needs.
This calculator is the first step in helping you answer those questions and making the money you earn today work to build you a better tomorrow.
http://www.choosetosave.org/ballpark/index.cfm?fa=interactive This site was created by the Employee Benefit Research Institute, this financial website offers savings tips, retirement calculators, and links to retirement resources to help you plan your retirement.
http://cgi.money.cnn.com/retirement/tools
http://moneycentral.msn.com/personal-finance
http://finance.yahoo.com/retirement
http://www.walletpop.com/calculators/retirement .
http://screen.morningstar.com/IRA/IRACalculator.html
http://immediateannuities.com .
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Annuities Manage Investment, Longevity and Inflation Risks.
Annuities are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year. The average 401(k) fund balance dropped 31 percent to $47,500 at the finish of March 2009 from $69,200 at the finish of 2007, according to a Fidelity Investments review of 11 million accounts it manages.
The distribution of assets is an art. For most of us, the immediate aim is to save for retirement so they can have a comfortable lifestyle. But once you have achieved that goal, the next task is to ensure that you don’t withdraw so much from your retirement nest egg that you finish up outliving your funds.
An annuity is a type of “insurance” against outliving our assets. Annuities are a widespread retirement product that guarantees a steady stream of income for a lifetime. An annuity is a contract between you and an insurance company, In exchange for your premium payment, the insurance company guarantees you income, beginning immediately or at some time in the future.” This potential income can be a great supplement to Social Security.
When it comes to retirement planning, there’s three main risks to a sustainable income. Investment risk, Longevity risk, and Inflation risk.
Stocks or mutual funds can lose money. Of coursework, they all understand this from watching recent financial news. Certificates of Deposit & Savings Accounts are also safe, but they have low interest rates.
Equity Indexed Annuity – The rates will be tied to a huge index like the S&P 500 or the Dow Jones. The return rate will be less than the actual market return in years when the index goes up. When the market goes down though, there is a guaranteed return rate so the account does not lose funds. A common guaranteed return would be 2% – 3%.
An Equity Indexed Annuity is the one device that can accomplish all three risks.
Investment risk: All investors have experienced the ups & downs of market cycles, but these fluctuations can be problematic in the years before & after retirement. The ability to generate a lifetime income from retirement can depend greatly on when you start to take income and, specifically, on the sequence of your returns. Negative returns early in retirement have more impact, and when returns finally turn positive, it takes longer to make up the losses caused by the initial declines.
Equity Indexed Annuities, provide investment risk protection by helping to assure a predicable level of income, regardless of market conditions.
Longevity risk: The risk of outliving your retirement savings. Thanks to advances in science and medicine, life expectancies – and the length of the average retirement – have increased by 20 years. and if both you and your spouse reach age 65, there is 52 percent chance that one of you will live to be 90. (Source: Society of Actuaries, 2006.)
As a result, without careful planning, the risk increases significantly that you may outlive your retirement savings. Income must be able to sustain lifestyle needs for much longer, while also covering health care, housing and other costs for an extended period of time. Length of retirement… life expectancy- It is very important to make sure your assets last a lifetime and if at all possible increase to provide for adjustments to the cost of living.
Equity Indexed Annuities, eliminate longevity risk by generating a guaranteed flow of retirement income that cannot be outlived.
Inflation risk: What would appear to be a statistical marvel is a financial irony, for inflation can devastate lives as readily as healthy lifestyle choices and modern medicine can sustain them. Inflation erodes the purchasing power of your income and wealth. and it doesn’t stop because you have retired.
Of particular concern in any retirement income plan is the cost of health care, which is rising far more rapidly than the cost of living. During the past six years, while inflation was pushing prices up by about 20 percent, the cost of health care over doubled.
Equity Indexed Annuities, combat inflation by allowing you to access the upside of the equity market and lock in gains to increase potential retirement income.
Historically in the past, it was possible to address these risks individually by combining multiple types of investment products, but it was impossible to effectively reduce all risks with a single investment vehicle. Today, however, new annuity designs integrate a range of features and benefits that make it possible to deal with all three risks.
Annuities A Risk Free Retirement Plan
Many people spend more time planning their next two week break than they do planning their retirement – the longest holiday of their lives. Just imagine running out of money part way through your holiday. How bad would that be?
When deciding what retirement and investment vehicles are appropriate for you, there are several types of products and special situations to consider. Each savings vehicle or investment will affect your lifestyle during your retirement years, and carries with it specific risks and requirements.
Many financial advisors suggest annuities to those looking for an appropriate investment that offers guaranteed income during their retirement years. This type of investment reduces the volatility experienced in traditional stock market investments and certain subtypes like the Equity Indexed Annuity allow owners to still cash in on large gains in the market.
Generally, minimum annuity interest rates exceed those paid by traditional CDs. Equity-Indexed annuities pay guaranteed minimum interest rates but actual returns fluctuate based on stock market indices such as the S-P 500. This means that you may take advantage of an up market with larger gains, usually up to 8 to 10 percent per year. At the same time, when the market plummets, you have the safety net of a minimum base rate regardless.
In fact the Obama administration’s is now looking at how annuity contracts are perceived and used. Reports in the NY Times, Wall Street Journal and Boston Globe this week drive home the message that the Obama administration has come to the conclusion that one of the easiest and most pragmatic ways to boost retirement savings and provide a more secure retirement income for American’s is to encourage the use of annuities.
With an annuity you can have a stream of income that will last a lifetime, we call it longetivity insurance. As the world of medicine continues to improve, life expectancies keep rising. Recent estimates give a healthy 65-year-old man a 24% chance of living to at least 90 and a healthy woman a 35% chance of living that long. Statistics also show married couples generally live longer than their single peers. So if you’re married, you should add a couple more years to your life expectancy.
We appear poised to enter a golden age in the use of and appreciation for annuities for the vast majority of Americans. Another safety factor to consider is the stability of insurance companies. Insurance companies purpose is dealing with risk. You can check Insurance companies and their financial strength relying on the organizations that rate insurance companies’: A. M. Best Company, Standard & Poor, Moody’s, and Fitch.
The challenge most retiree’s have is you’ll have to walk the line between overspending and underspending your retirement funds. To ensure that you don’t spend too much, it’s important to keep your spending in check. By setting limits on how much money you can take out and spend each year to make sure your nest egg will last the rest of your lifetime. Many retirees can only withdraw somewhere between 3-5% of their retirement assets each year to fund all their living expenses without worrying about running out of money.
We believe that more people who take advantage of guaranteed lifetime income are in a better position to achieve retirement income security. Additionally, annuities are common for those nearing or in retirement that are looking for a vehicle to rollover their 401k funds into, or hoping to simply protect their retirement nest egg. On the whole, I like the strategy of moving money into an IRA.
It’s not unusual for employers to allow a transfer of the bulk of your retirement money out of your retirement account once an employee reaches a certain age and transfer it into an IRA.
The first reason deals with control. By directly transferring the money into an IRA annuity, you will have more investment options available. This allows you to build a portfolio and coordinate it with other investments. From purely a control standpoint, it makes sense to transfer the money.
I like the idea of transferring money out of your current retirement plan, but you don’t want to turn around and invest that money in high-cost investments.
The second reason to transfer money into an IRA annuity is cost. By transferring the money into an IRA annuity, you invest at a much lower cost. The cost savings, if you look over any one year, may not be that significant. However, when you talk about a number of years, the savings can be substantial.
Ensuring a comfortable retirement in today’s volatile investment climate is daunting, but it is also achievable with the knowledge of what to do and, as important, not to do. It is imperative for seniors and others saving for retirement to avoid complacency and be actively involved to ensure their unique and personal needs are being taken care of.
